24th Feb 2015 11:10
LONDON (Alliance News) - Drax Group PLC Tuesday slashed its dividend after reporting a fall in underlying earnings in 2014 and cut its capital expenditure budget by over a quarter for 2015, as it warned the outlook for this year is set to reflect "deterioration in the commodity markets".
Although underlying earnings and EBITDA for the year fell, the company did report a rise in pretax profit for the year on the back of unrealised financial gains from derivative contracts, it said.
For the year ended December 31, the company reported a fall in earnings before interest, tax, depreciation and amortization to GBP229 million from GBP230 million in 2013.
This led to the company reporting underlying earnings of GBP96 million, down from GBP142 million a year earlier, and a pretax profit of GBP165.9 million, which is up from GBP31.8 million in 2013.
"The 2014 tax charge of GBP37 million, compares to a GBP20 million tax credit in 2013. The increase principally reflects the increase in profit before tax in 2014 versus 2013, which was driven primarily by the unrealised gains recognised in respect of derivative contracts this year," it said.
However, the company slashed its total dividend to 11.9 pence per share from 17.6p, as expected by analysts and which Drax said was in line with the company's policy to distribute 50% of underlying earnings.
Drax reported GBP80.7 million in depreciation, mainly linked to its conversion of its power stations to biomass, which was higher than anticipated. In 2013, it recorded GBP65 million in depreciation, and Drax said this will continue to rise year on year as its biomass transformation progresses.
A settlement with UK regulators related to the Community Energy Savings Programme, additional depreciation, and interest charges resulted in an incremental pre-tax charge of GBP41 million in 2014. However the increase in pre-tax profit was driven by unrealised gains on derivative contracts of GBP66 million, compared to unrealised losses of GBP110 million last year.
The CESP settlement relates to the company's agreement to pay Ofgem a total of GBP28 million for failing to comply with the industry regulator's Community Energy Savings Programme, of which GBP20 million was attributed to 2014. The additional GBP8 million will be delivered as further consumer redress measures come into play.
Revenue for the year reached GBP2.45 billion, up from GBP1.78 billion in 2013, driven by increased sales from the company's Drax Power and Haven Power business units.
Drax Power, the largest coal-fired power plant in the UK, generated 26.7 terrawatt hours of electricity in 2014, up from 26.2 terrawatt hours in 2013, whilst biomass generation significantly rose to 7.9 terrawatt hours from only 2.9 terrawatt hours, following the company's conversion of its second unit to biomass in October.
Haven Power, which serves Drax's business customers, delivered 11.8 terrawatt hours of sales, up from 8.1 terrawatt hours a year earlier. This led to sales increasing to GBP1.1 billion from GBP751 million in 2013.
Drax said it is on target to achieve between 12 to 15 terrawatt hours from Haven by the end of 2015.
"External factors have been challenging, with regulatory headwinds in 2014 exacerbated by the recent major deterioration in commodity markets. In these conditions we are placing particular focus on business efficiencies and cost control measures," said Chief Executive Dorothy Thompson.
Drax added the "current earnings outlook for 2015 reflects major deterioration in commodity markets, following the oil market decline."
The company spent a total of GBP201 million in capital expenditure in 2014, but said it will cut this to GBP150 million in 2015.
Of Drax's 2014 capital expenditure, GBP125 million was spent on the company's biomass transformation, and Drax said the project is in line with its original cost guidance of between GBP650 million and GBP700 million.
Between 2015 and 2017, Drax will spend a further GBP130 million on the biomass transformation project.
"We remain committed to our strategy to convert three units to biomass with the funding platform already in place to deliver this. Our capital expenditure projects to support this ambition remain on schedule and on budget and are set to deliver a stronger, more robust business. In 2016 we will have converted three units to biomass, providing cost-effective, low carbon renewable energy," Drax said Tuesday.
Drax said it continues to "assess options for value enhancing investments, including a potential third US Gulf pellet plant."
Drax shares fell by 0.6% to 400.60 pence per share on Tuesday morning.
By Joshua Warner; [email protected]; @JoshAlliance
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